Exhibit 4.2
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES
Date of Issuance: September 26, 2003
$[21,000,000]
4% CONVERTIBLE DEBENTURE
DUE MARCH 31, 2005
THIS DEBENTURE is one of a series of duly authorized and issued 4%
Convertible Debentures of Pharmos Corporation, a Nevada corporation, having a
principal place of business at 00 Xxxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxx Xxxxxx
00000 (the "Company"), designated as its 4% Convertible Debenture, due March 31,
2005 (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to _______________________
or its registered assigns (the "Holder"), the principal sum of $[21,000,000] on
March 31, 2005 or such earlier date as the Debentures are required or permitted
to be repaid as provided hereunder (the "Maturity Date"), and to pay interest to
the Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture at the rate of 4% per annum, payable quarterly on March 31, June
30, September 30 and December 31, beginning on the first such date after the
Original Issue Date and on each Conversion Date (as to that principal amount
then being converted) and on the Maturity Date (except that, if any such date is
not a Business Day, then such payment shall be due on the next succeeding
Business Day) (each such date, an "Interest Payment Date") in cash or shares of
Common Stock at the Interest Conversion Rate, or a combination thereof;
provided, however, payment in shares of Common Stock may only occur if: (i)
there is an effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the shares
issuable pursuant to the Transaction Documents, including shares of Common Stock
to be issued in lieu of cash (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (ii) the
Common Stock is listed for trading on a Trading Market (and the Company
believes, in good faith, that trading of the Common Stock on a Trading Market
will continue uninterrupted for the foreseeable future), (iii) there is a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares issuable pursuant to the
Transaction Documents, including
the shares to be issued for interest in lieu of cash and (iv) there is then
existing no Event of Default or event which, with the passage of time or the
giving of notice, would constitute and Event of Default, (v) the issuance of
such shares, when added to the shares issued or issuable upon conversion of the
Debentures in full and issued and issuable upon exercise of the Warrants in full
would not violate the limitations set forth in Section 4(a)(ii) and (vi) the
Interest Conversion Rate is greater than or equal to the Set Price then in
effect, subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock
that occur after the Original Issue Date. Subject to the terms and conditions
herein, the decision whether to pay interest hereunder in shares of Common Stock
or cash shall be at the discretion of the Company. Not less than 10 Trading Days
prior to each Interest Payment Date, the Company shall provide the Holder with
written notice of its election to pay interest hereunder either in cash or
shares of Common Stock (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Within 10 Trading Days prior to an Interest Payment Date, the
Company's election (whether specific to an Interest Payment Date or continuous)
shall be irrevocable as to such Interest Payment Date. Subject to the
aforementioned conditions, failure to timely provide such written notice shall
be deemed an election by the Company to pay the interest on such Interest
Payment Date in cash. Interest shall be calculated on the basis of a 360-day
year and shall accrue daily commencing on the Original Issue Date until payment
in full of the principal sum, together with all accrued and unpaid interest and
other amounts which may become due hereunder, has been made. Payment of interest
in shares of Common Stock shall otherwise occur pursuant to Section 4(b) and
only for purposes of the payment of interest in shares, the Interest Payment
Date shall be deemed the Conversion Date. Interest shall cease to accrue with
respect to any principal amount converted, provided that the Company in fact
delivers the Underlying Shares within the time period required by Section
4(b)(i). Interest hereunder will be paid to the Person in whose name this
Debenture is registered on the records of the Company regarding registration and
transfers of Debentures (the "Debenture Register"). Except as otherwise provided
herein, if at anytime the Company pays interest partially in cash and partially
in shares of Common Stock, then such payment shall be distributed ratably among
the Holders based upon the principal amount of Debentures held by each Holder.
All overdue accrued and unpaid interest to be paid hereunder shall entail a late
fee at the rate of 15% per annum (or such lower maximum amount of interest
permitted to be charged under applicable law) ("Late Fee") which will accrue
daily, from the date such interest is due hereunder through and including the
date of payment. Notwithstanding anything to the contrary contained herein, if
on any Interest Payment Date the Company has elected to pay interest in Common
Stock and is not able to pay accrued interest in the form of Common Stock
because it does not then satisfy the conditions for payment in the form of
Common Stock set forth above (other than as a result of clause (vi) above),
then, at the option of the Holder, the Company, in lieu of delivering either
shares of Common Stock pursuant to Section 4 hereof or paying the regularly
scheduled cash interest payment, shall deliver, within three Trading Days of
each applicable Interest Payment Date, an amount in cash equal to the product of
the number of shares of Common Stock otherwise deliverable to the Holder in
connection with the payment of interest due such Interest Payment Date and the
highest Closing Price during the period commencing on the Interest Payment Date
and ending on the Trading Day prior to the date such payment is made. If on any
Interest Payment Date the Company has elected to pay interest in Common Stock
and is not able to pay accrued interest in the form of Common Stock because it
does not then satisfy the conditions for such form of payment as a result of
clause (vi) above, then the Company, in lieu of delivering shares of Common
Stock pursuant to Section 4 hereof, shall pay the regularly scheduled cash
interest payment. Except as set forth in Section 5, the Company may not prepay
any portion of the principal amount of this Debenture without the prior written
consent of the Holder.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations. Prior to due
presentment to the Company for transfer of this Debenture, the Company and any
agent of the Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
i) any default in the payment of the principal of, interest
(including Late Fees) on, or liquidated damages in respect of, any
Debentures, free of any claim of subordination, as and when the same
shall become due and payable (whether on a Conversion Date or the
Maturity Date or by acceleration or otherwise) which default is not
cured, if possible to cure, within 5 days of notice of such default
sent by the Holder;
ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit
any breach of any of the Transaction Documents (other than a breach
by the Company of its obligations to deliver shares of Common Stock
to the Holder upon conversion or interest payment which breach is
addressed in clause (x) below) which is not cured, if possible to
cure, within 10 days of notice of such default sent by the Holder;
iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary
a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company
commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Company or any subsidiary
thereof or there is commenced against the Company or any subsidiary
thereof any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial
part of its property which continues undischarged or unstayed for a
period of 60 days; or the Company or any subsidiary thereof makes a
general assignment for the benefit of creditors; or the Company
shall fail to pay, or shall state that it is unable to pay, or shall
be unable to pay, its debts generally as they become due; or the
Company or any subsidiary thereof shall call a meeting of its
creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act expressly
indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company
or any subsidiary thereof for the purpose of effecting any of the
foregoing;
iv) the Company shall default in any of its obligations under
any other Debenture or any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness for borrowed money or money
due under any long term leasing or factoring arrangement of the
Company in an amount exceeding $150,000, whether such indebtedness
now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
v) the Common Stock shall not be eligible for quotation on or
quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
vi) the Company shall be a party to any Change of Control
Transaction, shall agree to sell or dispose of all or in excess of
50% of its assets in one or more transactions (whether or not such
sale would constitute a Change of Control Transaction) or shall
redeem or repurchase more than a de minimis number of its
outstanding shares of Common Stock or other equity securities of the
Company (other than redemptions of Conversion Shares and repurchases
of shares of Common Stock or other equity securities of departing
officers and directors of the Company; provided no repurchase shall
exceed $100,000 for any officer or director);
vii) a Registration Statement shall not have been declared
effective by the Commission on or prior to the 150th calendar day
after the Original Issue Date;
viii) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder shall not
be permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Registration Statement, in
either case, for more than 15 consecutive Trading Days or 25
non-consecutive Trading Days during any 12 month period;
ix) an Event (as defined in the Registration Rights Agreement)
shall not have been cured to the satisfaction of the Holder prior to
the expiration of thirty days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto (other than an Event
resulting from a failure of an Registration Statement to be declared
effective by the Commission on or prior to the Effectiveness Date
(as defined in the Registration Rights Agreement), which shall be
covered by Section 3(a)(vii));
x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the seventh Trading Day after a
Conversion Date pursuant to and in accordance with Section
4(b)(unless the conversion has been rescinded by the Holder pursuant
to Section 4(b)(i)) or the Company shall provide notice to the
Holder, including by way of public
announcement, at any time, of its intention not to comply with
requests for conversions of any Debentures in accordance with the
terms hereof; or
xi) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within
seven days after notice thereof is delivered hereunder.
b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture, together with interest and other
amounts owing in respect thereof, to the date of acceleration shall become
at the Holder's election, immediately due and payable in cash. The
aggregate amount payable upon such acceleration following an Event of
Default shall be equal to the Mandatory Prepayment Amount. Commencing 5
days after the occurrence of any Event of Default that results in the
eventual acceleration of this Debenture, the interest rate on this
Debenture shall accrue at the rate of 15% per annum (or such lower maximum
amount of interest permitted to be charged under applicable law). All
Debentures for which the full prepayment price hereunder shall have been
paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company
hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such declaration may
be rescinded and annulled by Xxxxxx at any time prior to payment hereunder
and the Holder shall have all rights as a Debenture holder until such
time, if any, as the full payment under this Section shall have been
received by it. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 4. Conversion.
a) i) At any time after the Original Issue Date until this Debenture
is no longer outstanding, this Debenture shall be convertible into
shares of Common Stock at the option of the Holder, in whole or in
part (in increments of at least $100,000 principal amount) at any
time and from time to time (subject to the limitations on conversion
set forth in Section 4(a)(ii) hereof). The Holder shall effect
conversions by delivering to the Company the form of Notice of
Conversion attached hereto as Annex A (a "Notice of Conversion"),
specifying therein the principal amount of Debentures to be
converted and the date on which such conversion is to be effected (a
"Conversion Date"). If no Conversion Date is specified in a Notice
of Conversion, the Conversion Date shall be the date that such
Notice of Conversion is provided hereunder. To effect conversions
hereunder, the Holder shall not be required to physically surrender
Debentures to the Company unless the entire principal amount of this
Debenture plus all accrued and unpaid interest thereon has been so
converted. Conversions hereunder shall have the effect of lowering
the outstanding principal amount of this Debenture in an amount
equal to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount converted and the date
of such conversions. The Company shall deliver any objection to any
Notice of Conversion within 1 Business Day of receipt of such
notice. In the event of any dispute or discrepancy, the records of
the Company shall be controlling and determinative in the absence of
manifest error. The Holder and any assignee, by acceptance of this
Debenture, acknowledge and agree that, by reason of the provisions
of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this
Debenture may be less than the amount stated on the face hereof.
ii) Conversion Limitation. The Holder shall not have the right
to convert any portion of this Debenture, pursuant to Section
4(a)(i) or otherwise, to the extent that after giving effect to such
conversion, the Holder (together with the Holder's affiliates), as
set forth on the applicable Notice of Conversion, would beneficially
own in excess of 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon
conversion of this Debenture with respect to which the determination
of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion
of the remaining, nonconverted portion of this Debenture
beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of
any other securities of the Company (including, without limitation,
any other Debentures or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section
4(a)(ii), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act. To the extent that the
limitation contained in this section applies, the determination of
whether this Debenture is convertible (in relation to other
securities owned by the Holder) and of which a portion of this
Debenture is convertible shall be in the sole discretion of such
Holder. To ensure compliance with this restriction, the Holder will
be deemed to represent to the Company each time it delivers a Notice
of Conversion that such Notice of Conversion has not violated the
restrictions set forth in this paragraph and the Company shall have
no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 4(a)(ii), in determining
the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as
reflected in (x) the Company's most recent Form 10-Q or Form 10-K,
as the case may be, (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the Company's
Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the
Company shall within two Trading Days confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding.
In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of
securities of the Company, including this Debenture, by the Holder
or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of
this Section 4(a)(ii) may be waived by the Holder upon, at the
election of the Holder, not less than 61 days' prior notice to the
Company, and the provisions of this Section 4(a)iii) shall continue
to apply until such 61st day (or such later date, as determined by
the Holder, as may be specified in such notice of waiver).
iii) Conversion Shares Issuable Upon Conversion of Principal
Amount. The number of shares of Common Stock issuable upon a
conversion shall be determined by the quotient obtained by dividing
(x) the outstanding principal amount of this Debenture to be
converted by (y) the Set Price.
(b) i) Not later than five Trading Days after any Conversion Date,
the Company will deliver to the Holder a certificate or certificates
representing the Conversion Shares which shall be free of
restrictive legends and trading restrictions (other than those
required by the Purchase Agreement) representing the number of
shares of Common Stock being acquired
upon the conversion of Debentures (including, if so timely elected
by the Company, shares of Common Stock representing the payment of
accrued interest) and (B) a bank check in the amount of accrued and
unpaid interest (if the Company has timely elected or is required to
pay accrued interest in cash). The Company shall, if available and
if allowed under applicable securities laws, use its best efforts to
deliver any certificate or certificates required to be delivered by
the Company under this Section electronically through the Depository
Trust Corporation or another established clearing corporation
performing similar functions. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to
Holder (in the case of paper certificates) or made available under
the electronic DWAC system by the Company's transfer agent for
access by the Holder's broker designated in the Notice of Conversion
as directed by the applicable Holder by the fifth Trading Day after
a Conversion Date, the Holder shall be entitled by written notice to
the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which
event the Company shall immediately return the certificates
representing the principal amount of Debentures tendered for
conversion.
ii) If the Company fails for any reason to deliver to the Holder
such certificate or certificates pursuant to Section 4(b)(i) by the
fifth Trading Day after the Conversion Date, the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty,
for each $5,000 of principal amount being converted, $50 per Trading
Day for each Trading Day after such fifth Trading Day until such
certificates are delivered; provided, however, that such liquidated
damages payable to any Holder shall not exceed 10% of the aggregate
principal amount being converted. The Company's obligations to issue
and deliver the Conversion Shares upon conversion of this Debenture
in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the
same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to
enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other
person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; provided,
however, such delivery shall not operate as a waiver by the Company
of any such action the Company may have against the Holder. In the
event a Holder of this Debenture shall elect to convert any or all
of the outstanding principal amount hereof, the Company may not
refuse conversion based on any claim that the Holder or any one
associated or affiliated with the Holder of has been engaged in any
violation of law, agreement or for any other reason, unless, an
injunction from a court, on notice, restraining and or enjoining
conversion of all or part of this Debenture shall have been sought
and obtained and the Company posts a surety bond for the benefit of
the Holder in the amount of 150% of the principal amount of this
Debenture outstanding, which is subject to the injunction, which
bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder to the extent it obtains judgment.
In the absence of an injunction precluding the same, the Company
shall issue Conversion Shares or, if applicable, cash, upon a
properly noticed conversion. Nothing herein shall limit a Xxxxxx's
right to pursue actual damages or declare an Event of Default
pursuant to Section 3 herein for the Company's failure to deliver
Conversion Shares within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at law
or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holders from
seeking to enforce damages pursuant to any other Section hereof or
under applicable law.
(iii) In addition to any other rights available to the Holder, if
the Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the fifth
Trading Day after the Conversion Date, and if after such fifth
Trading Day the Holder is required by its brokerage firm to purchase
(in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by such Holder of the Conversion Shares
which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall (A) pay in cash to the Holder (in
addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of
Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the actual sale price of the
Common Stock at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation and (B)
at the option of the Holder, either reissue Debentures in principal
amount equal to the principal amount of the attempted conversion or
deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its
delivery requirements under Section 4(b)(i). For example, if the
Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the actual sale price of the
Conversion Shares at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation was a
total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000.
The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a
Holder requires the Company to make payment in respect of a Buy-In
for the failure to timely deliver certificates hereunder and the
Company timely pays in full such payment, the Company shall not be
required to pay such Holder liquidated damages under Section
4(b)(ii) in respect of the certificates resulting in such Buy-In.
(iv) Notwithstanding anything herein to the contrary, if after the
Effective Date the Closing Prices for 10 out of any 20 consecutive
Trading Days (such period not commencing until after the Effective
Date) exceeds $5.50, subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the Original Issue
Date, the Company may on one occasion, within 3 Trading Days of any
such period, deliver a notice to the Holder to cause the Holder to
immediately convert all or part of up to 50% of the original
aggregate principal amount of the Debentures pursuant to Section
4(a)(i) ("$5.50 Forced Conversion"). The Company may only effect a
$5.50 Forced Conversion or notice thereof if each of the Equity
Conditions have been met with respect to such $5.50 Forced
Conversion during the 20 Trading Day period relating to such $5.50
Forced Conversion and until the date of such $5.50 Forced
Conversion. If the Company elects to exercise its right to a $5.50
Forced Conversion, it shall exercise such right ratably among all
holders of Debentures.
(v) Notwithstanding anything herein to the contrary, if after the
Effective Date the Closing Prices for 10 out of any 20 consecutive
Trading Days (such period not commencing until after the Effective
Date) exceeds $6.50, subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the Original Issue
Date, the Company may on one occasion, within 3 Trading Days of any
such period, deliver a notice to the Holder to cause the Holder to
immediately convert all or part of up to 50% of the original
aggregate principal amount of the Debenture pursuant to Section
4(a)(i) ("$6.50 Forced Conversion" and collectively with the $5.50
Forced Conversion, "Forced Conversions"). The Company may only
effect a $6.50 Forced Conversion or notice thereof if each of the
Equity Conditions have been met with respect to such $6.50 Forced
Conversion during the 20 Trading Day period relating to such $6.50
Forced Conversion and until the date of such $6.50 Forced
Conversion. If the Company elects to exercise its right to a $6.50
Forced Conversion, it shall exercise such right ratably among all
holders of Debentures.
(c) i) The conversion price in effect on any Conversion Date shall
be equal to $4.04(1) (subject to adjustment herein)(the "Set
Price").
ii) If the Company, at any time while the Debentures are
outstanding: (A) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any
other equity or equity equivalent securities payable in shares of
Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company pursuant to this
Debenture, including as interest thereon), (B) subdivide outstanding
shares of Common Stock into a larger number of shares, (C) combine
(including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issue by
reclassification of shares of the Common Stock any shares of capital
stock of the Company, then the Set Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of
shares of Common Stock outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.
iii) [RESERVED]
iv) [RESERVED]
v) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 4, the number of shares of Common Stock
outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any)
outstanding.
vi) Whenever the Set Price is adjusted pursuant to any of Section
4(c)(ii) - (v), the Company shall promptly mail to each Holder a
notice setting forth the Set Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
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(1) 205% of the average of the 5 Closing Prices immediately prior to the
Original Issue Date.
vii) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights; (D) the
approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company,
of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (E) the Company
shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in
each case, the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of the Debentures,
and shall cause to be mailed to the Holders at their last addresses
as they shall appear upon the stock books of the Company, at least
20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not
to be taken, the date as of which the holders of the Common Stock of
record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such
notice. Holders are entitled to convert Debentures during the 20-day
period commencing the date of such notice to the effective date of
the event triggering such notice.
viii) If, at any time while this Debenture is outstanding, (A) the
Company effects any merger or consolidation of the Company with or
into another Person, (B) the Company effects any sale of its assets
in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a "Fundamental
Transaction"), then upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each
Underlying Share that would have been issuable upon such conversion
absent such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to
receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the
holder of one share of Common Stock (the "Alternate Consideration").
For purposes of any such conversion, the determination of the Set
Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Set Price among the
Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to
the securities, cash or
property to be received in a Fundamental Transaction, then the
Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture
following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the
Holder a new debenture consistent with the foregoing provisions and
evidencing the Holder's right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the
provisions of this paragraph (c) and insuring that this Debenture
(or any such replacement security) will be similarly adjusted upon
any subsequent transaction analogous to a Fundamental Transaction.
Additionally, if the Company or any of its subsidiaries, at any time
while the Debentures are outstanding, shall distribute to all
holders of Common Stock evidences of its indebtedness or assets or
cash or rights or warrants to subscribe for or purchase any security
of the Company or any of its subsidiaries, then concurrently with
such distributions to holders of Common Stock, the Company shall
distribute to holders of the Debentures the amount of such
indebtedness, assets, cash or rights or warrants which the holders
of Debentures would have received had all their Debentures been
converted into Common Stock at the lower of the Set Price and the
Closing Price immediately prior to the record date for such
distribution.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
persons other than the Holders, not less than such number of shares of the
Common Stock as shall (subject to any additional requirements of the
Company as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and
restrictions of Section 4(b)) upon the conversion of the outstanding
principal amount of the Debentures and payment of interest hereunder. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized and issued and
fully paid, nonassessable and, if the Registration Statement is then
effective under the Securities Act, registered for public sale in
accordance with such Registration Statement.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Closing Price at such time. If
the Company elects not, or is unable, to make such a cash payment, the
Holder shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of
such Debentures so converted and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any
Notice of Conversion, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service,
addressed to the Company, at the address set forth above, facsimile number
(000) 000-0000, Attn: Xxxxxx X. Xxxx or such other address or facsimile
number as the Company may specify for such purposes by notice to the
Holders delivered in accordance with this Section. Any and all notices or
other communications or deliveries to be provided by the Company hereunder
shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service addressed to each Holder
at the facsimile telephone number or address of such Xxxxxx appearing on
the books of the Company, or if no such facsimile telephone number or
address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed
given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 5:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone
number specified in this Section later than 5:30 p.m. (New York City time)
on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given.
Section 5. Redemption; Extension of Maturity Date.
(a) Monthly Redemption. On each Monthly Redemption Date, the Company
shall redeem each Holder's Pro Rata Portion of the Monthly Redemption
Amount plus accrued but unpaid interest plus the sum of all liquidated
damages and any other amounts then owing to such Holder in respect of the
Debenture. For purposes of this Section 5(b) only, "Pro Rata Portion" is
the ration of (x) the principal amount of this Debenture on the Original
Issue Date and (y) the sum of the aggregate original principal amounts of
the Debentures issued to all Holders on the Closing Date. If any Holder
shall no longer holds Debentures or if a Holder's outstanding principal
amount is less than their Pro Rata Portion of the Monthly Redemption
Amount, then such Holder's Monthly Redemption Amount shall be such lesser
amount and the Pro Rata Portion shall be recalculated to exclude such
Holder's principal amount (or portion thereof no longer outstanding) from
clause (y) above and the Monthly Redemption Amount shall be allocated
pro-rata among the remaining Holders. The Monthly Redemption Amount due on
each Monthly Redemption Date shall, except as provided in this Section, be
paid in cash. The Holders may convert, pursuant to Section 4(a)(i), any
principal amount of the Debenture subject to a Monthly Redemption at any
time prior to the date that the Monthly Redemption Amount and all amounts
owing thereon are due and paid in full. The Company covenants and agrees
that it will honor all Conversion Notices tendered up until such amounts
are paid in full.
(b) Redemption Procedure. The payment of cash pursuant to a Monthly
Redemption shall be made on the Monthly Redemption Date. If any portion of
the cash payment for a Monthly Redemption shall not be paid by the Company
by the due date, interest shall accrue thereon at the rate of 15% per
annum (or the maximum rate permitted by applicable law, whichever is less)
until the payment of the Monthly Redemption Amount, plus all amounts owing
thereon is paid in full. In addition, if any portion of the Monthly
Redemption Amount remains unpaid after such date, the Holders subject to
such redemption may elect, by written notice to the Company given at any
time thereafter, to invalidate ab initio such redemption, notwithstanding
anything herein contained to the contrary.
(c) Extension of Maturity Date; Modification of Redemption Schedule.
To the extent that any of the principal represented by this Debenture that
is held in escrow in accordance with the terms of the Escrow Agreement is
used by the Company in connection with an acquisition by the Company
approved by the Holders in accordance with the provisions of the Escrow
Agreement (the "Acquisition Principal Amount"), (i) the Maturity Date for
the Acquisition Principal Amount shall be extended for an additional two
years from the date of the closing of such acquisition, (ii) the first
Monthly Redemption Date, as provided in Section 5 hereof, for the
Acquisition Principal Amount shall occur on the first anniversary of the
date of such acquisition and the Acquisition Principal Amount plus accrued
and unpaid interest plus the sum of all liquidated damages and any other
amounts then owing to the Holders in respect of the Acquisition Principal
Amount shall be paid in twelve equal monthly installments commencing on
such first anniversary and (iii) the Monthly Redemption Amount relating to
all principal under the Debentures not constituting Acquisition Principal
Amount shall be reduced correspondingly.
Section 6. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on
which banking institutions in the State of New York are authorized or
required by law or other government action to close.
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 40% of the voting securities of the Company, or
(ii) a replacement at one time or within a three year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving
as members of the board of directors on any date whose nomination to the
board of directors was approved by a majority of the members of the board
of directors who are members on the date hereof), or (iii) the execution
by the Company of an agreement to which the Company is a party or by which
it is bound, providing for any of the events set forth above in (i) or
(ii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $0.03 par value per share, of
the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Consent" shall mean the vote of the Holders of at least 75% of the
principal amount of the Debentures then outstanding.
"Conversion Date" shall have the meaning set forth in Section
4(a)(i) hereof.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of Debentures in accordance with the terms hereof.
"Equity Conditions" means each of the following: (i) the Company
shall have duly honored all conversions occurring by virtue of one or more
Conversion Notices prior to the applicable Forced Conversion, if any (ii)
there is an effective Registration Statement pursuant to which the Holder
is permitted to utilize the prospectus thereunder to resell all of the
Underlying Shares issued to the Holder and all of the Underlying Shares as
are issuable to the Holder upon conversion in full of this Debenture
subject to the applicable Forced Conversion (and the Company believes, in
good faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iii) the Common Stock is listed for trading on a
Trading Market (and the Company believes, in good faith, that trading of
the Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (iv) all liquidated damages and other amounts owing
in respect of the Debentures and Underlying Shares shall have been paid or
will, concurrently with the issuance of the Underlying Shares, be paid in
cash; (v) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all the
Underlying Shares as are issuable to the Holder upon conversion in full of
the Debentures subject to the applicable Forced Conversion; (vi) the
issuance of such shares upon conversion of the Debentures in the
applicable Forced Conversion would not violate the limitations set forth
in Section 4(a)(ii), calculated in a manner consistent with the second
sentence thereof, and (vii) no Event of Default nor any event that with
the passage of time or notice or both would constitute an Event of Default
has occurred and is continuing.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Interest Conversion Rate" means the average of the 5 Closing Prices
immediately prior to the applicable Interest Payment Date.
"Late Fees" shall have the meaning set forth in the second paragraph
to this Debenture.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the greater of: (A) 120% of the principal amount of Debentures to
be prepaid, plus all accrued and unpaid interest thereon and all other
accrued and unpaid amounts due hereunder, or (B) the principal amount of
Debentures to be prepaid, plus all other accrued and unpaid interest
hereon and other amounts due hereunder, divided by the Set Price on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due or
(y) the date the Mandatory Prepayment Amount is paid in full, whichever is
less, multiplied by the Closing Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in
respect of such Debentures.
"Monthly Redemption" shall mean the redemption of the Debenture
pursuant to Section 5(a) hereof.
"Monthly Redemption Amount" shall mean, as to a Monthly Redemption,
$1,615,384.60(2) in the aggregate among all Holders, or such lesser
principal amount of the Debentures as is outstanding in the aggregate on
the Monthly Redemption Date.
"Monthly Redemption Date" means the last Trading Day of each month,
commencing on the last Trading Day of March 2004 and ending upon the full
redemption of this Debenture.
----------
(2) 1/13 of the original aggregate principal amount issued pursuant to the
Purchase Agreement.
"Original Issue Date" shall mean the date of the first issuance of
the Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of September 26, 2003, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering
among other things the resale of the Conversion Shares and naming the
Holder as a "selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Set Price" shall have the meaning set forth in Section 4(c)(i).
"Trading Day" means (a) a day on which the shares of Common Stock
are traded on a Trading Market on which the shares of Common Stock are
then listed or quoted, or (b) if the shares of Common Stock are not quoted
on a Trading Market, a day on which the shares of Common Stock are quoted
in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, that in the event that the
shares of Common Stock are not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean a Business Day.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct debt obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Company shall not and shall cause it subsidiaries not to,
without the Consent of the Holders, (a) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holders; (b) repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of shares of its Common Stock or other
equity securities other than as to the Conversion Shares to the extent permitted
or required under the Transaction Documents or as otherwise permitted by the
Transaction Documents; or (c) enter into any agreement with respect to any of
the foregoing.
Section 8. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 9. So long as any portion of this Debenture is outstanding, the
Company will not and will not permit any of its subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness or liens of any kind, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income or
profits therefrom that is senior to, or pari passu with, in any respect, the
Company's obligations under the Debentures without the prior Consent of the
Holders.
Section 10. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the "New
York Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Debenture,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
Section 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law which would prohibit or forgive the Company
from paying all or any portion of the principal of or interest on this Debenture
as contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this indenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impeded the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every such as
though no such law has been enacted.
Section 13. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
*********************
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.
PHARMOS CORPORATION
By:_________________________________________
Name:
Title:
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 4% Convertible
Debenture of Pharmos Corporation (the "Company"), due on March __, 2005, into
shares of common stock, $0.03 par value per share (the "Common Stock"), of the
Company according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Company's Common Stock does
not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account of
Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
Schedule 1
CONVERSION SCHEDULE
4% Convertible Debentures due on March___, 2005, in the aggregate principal
amount of $____________ issued by Pharmos Corporation This Conversion Schedule
reflects conversions made under Section 4 of the above referenced Debenture.
Dated:
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Aggregate
Principal Amount
Remaining
Subsequent to
Date of Conversion Amount of Conversion Company Attest
(or for first entry, Conversion (or original
Original Issue Date) Principal
Amount)
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